Fall  of  Agricultural  Prices 


George  E.  Roberts 

Vice-President 

The  National  City  Bank  of  New  York 


AUG  2  7  1924 


The  Academy  of  Political  Science 
New  York  City  -  November  24, 1922 


Digitized  by  the  Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/fallofagriculturOOrobe 


Fall  of  Agricultural  Prices 


By  George  E.  Roberts 

Vice-President 

The  National  City  Bank  of  New  York 


An  address  before 
The  Academy  of  Political  Science 
New  York  City  -  November  24, 1922 


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AUG  2  7  1924 

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jj  Fall  of  Agricultural  Prices 

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TTHE  prices  of  staple  farm  products  were  violently  affected 
*  by  the  war.  The  most  important  direct  influence  in  the 
case  of  foodstuffs  was  that  occasioned  by  the  closing  of  the 
Black  Sea,  cutting  off  the  supplies  which  the  countries  of 
Western  Europe  were  accustomed  to  receive  from  Russia  and 
the  Balkan  countries.  For  the  five  years  next  preceding  the 
war  these  supplies  averaged  about  225,000,000  bushels  of  wheat 
per  year,  besides  important  quantities  of  other  farm  products. 
In  addition  to  the  interruption  of  these  shipments,  the  war 
caused  a  reduction  of  the  crops  in  the  countries  over-run  by 
the  armies.  These  losses  increased  the  demands  upon  the  pro¬ 
duction  of  the  United  States. 

The  price  of  wheat  in  the  United  States  was  influenced 
promptly.  The  range  of  No.  2  Red  Winter  in  Chicago  in  the 
month  of  June,  1914  was  from  7834  to  99  cents,  while  from 
August  1  to  December  31  the  range  was  from  85^  to  $1.33. 
Other  agricultural  prices  were  affected  in  1914  but  slightly, 
except  in  the  case  of  cotton,  which  declined  sharply.  The  aver¬ 
age  of  the  high  and  low  monthly  quotations  of  No.  2  Red 
Winter  wheat  in  Chicago  in  the  calendar  year  1915  was  $1.31  % 
per  bushel;  in  1916,  $1.38;  in  1917,  $2.30;  in  1918,  $2.23;  in 
1919,  $2.53;  in  1920,  $2.57.  In  1920  the  highest  price  was 
touched  in  January,  when  the  range  was  from  $2.50  to  $3.50 
per  bushel,  but  in  May  the  range  was  from  $2.83  to  $3.45.  In 

\ 


July  the  range  was  $2.29  to  $3.00,  and  it  was  October 
before  a  quotation  under  $2.00  was  made,  for  the  first  time  in 
three  years.  The  range  in  that  month  was  $2.39  down  to 
$1.9634*  The  low  price  for  November  and  the  year  was  $1.58. 
The  low  price  for  the  year  1921  was  $1.0034,  in  November;  and 
the  average  for  the  year  $1.48f£.  The  price  during  the  past 
week  in  Chicago  has  ranged  from  $1.15  to  $1.20. 

All  of  the  grains  followed  the  general  course  of  wheat, 
reaching  their  highest  prices  in  1920.  Corn  touched  $2.17  per 
bushel  in  June  and  in  November  sold  as  low  as  67  cents.  In 
October,  1921,  it  touched  42  cents,  and  is  now  back  to  about 
71  cents.  All  of  these  quotations  are  Chicago  prices. 

Live  Stock  Prices 

¥¥OGS  did  not  reach  unusual  prices  until  well  into  1916,  and 
*■“  the  highest  price  for  that  year  was  $11.60  per  hundred¬ 
weight.  In  1917  they  ranged  from  $12  to  $20,  in  1918  from 
$17  to  $20.95,  and  in  1919  touched  the  high  water  mark  at  $23.60. 
The  exports  of  hog  meats  jumped  from  442,000,000  pounds  in 
1913,  to  722,000,000  pounds  in  1917,  1,500,000,000  pounds  in 
1918,  and  2,000,000,000  pounds  in  1919.  In  1920  they  dropped 
to  871,000,000  pounds  and  the  price  of  hogs  at  the  close  of 
1920  had  fallen  to  between  $8  and  $9.  They  are  now  about  $8.00. 

Cattle  about  doubled  in  price  from  1913  to  1919,  and  from 
then  to  the  fall  of  1921  fell  back  to  about  the  1913  prices  and 
in  the  case  of  stock  cattle  in  many  instances  lower,  as  the  central 
markets  were  glutted  with  them.  A  good  recovery  has  been 
made  in  1922.  Sheep  followed  about  the  same  course  as  cattle, 
but  have  done  still  better  on  the  recovery,  owing  in  part  to 
the  new  customs  tariff  upon  wool. 

Rise  and  Decline  of  Cotton 

THE  foreign  demand  for  cotton,  unlike  that  for  the  grains 
and  meats,  was  unfavorably  affected  by  the  war.  In  the 
fiscal  years  from  1910  to  1914  our  average  exports  of  cotton 
were  about  9,300,000  bales  but  from  1915  to  1921  the  average 
was  under  6,000,000  bales.  Crops,  however,  were  smaller  than 


in  the  pre-war  period,  and  down  to  1920  great  confidence  existed 
in  the  latent  foreign  demand. 

It  was  confidently  believed  that  owing  to  the  interruption 
of  distribution  during  the  war,  the  world  was  in  need  of  more 
cotton  goods  than  the  available  supplies  of  raw  cotton  would 
make,  and  under  the  influence  of  this  belief,  cotton,  which  ranged 
in  1914  from  11^4  to  14*4  cents  per  pound  rose  to  43.75  cents 
per  pound  in  July,  1920,  from  which  it  dropped  to  14.5  in  De¬ 
cember  of  the  same  year,  and  to  the  low  point  on  that  crop, 
10.85,  in  June,  1921. 

The  cotton  crop  of  1921,  8,000,000  bales,  was  the  smallest 
grown  since  1893,  and  as  a  result,  the  price  rose  sharply  in 
September  to  above  21  cents  per  pound,  and  in  no  month  since 
has  the  average  of  the  highest  and  lowest  quotations  been 
below  18  cents.  The  crop  of  1922  is  another  small  one,  about 
10,000,000  bales,  and  the  price  of  cotton  in  New  York  is  now 
about  25  cents  per  pound. 

Summing  Up 

T^HE  rise  and  decline  of  crop  values  is  summed  up  by  the 

Department  of  Agriculture  in  a  table  in  which  the  ten 
principal  crops  are  combined  and  divided  by  the  total  acreage. 
The  average  value  per  acre  as  shown  by  this  method  was  $16.49 
in  1913,  and  this  was  the  highest  per  acre  value  for  all  crops 
ever  recorded  up  to  that  time.  In  1919  the  calculation  showed 
$35.74  per  acre,  and  in  1921  it  had  fallen  to  $14.52,  a  decline  of 
approximately  60  per  cent,  and  to  a  figure  about  12*4  per  cent 
below  the  level  of  1913. 

The  Department  of  Agriculture  has  made  a  calculation  of 
the  purchasing  power  of  farm  products  over  the  list  of  com¬ 
modities  for  which  prices  are  compiled  monthly  by  the  Bureau 
of  Labor,  omitting  the  farm  products  in  that  list,  and  basing 
all  figures  upon  the  prices  of  1913  as  100.  According  to  this 
calculation,  farm  products  were  relatively  lowest  in  November 
and  December,  1921,  when  their  purchasing  power  was  but  62 
per  cent  of  what  it  was  in  1913.  From  that  point  it  rose  to 
76  per  cent  in  March,  1922,  but  in  September  had  declined  to  64. 


The  Farmers’  Grievance 


T^HE  record  of  prices  of  farm  products  in  the  United  States 
^  does  not  show  any  previous  drop  so  general  and  precipitate  as 
that  which  occurred  from  the  high  prices  of  1920  to  the  low 
ones  of  1921,  and  when  the  disparity  between  the  prices  of 
what  the  farmer  has  had  to  sell  and  the  prices  of  what  he  had 
to  buy  is  considered,  and  the  further  fact  that  farm  indebtedness 
was  greater  than  ever  before,  it  is  not  strange  that  many  farmers 
should  feel  that  as  a  class  they  are  getting  the  worst  of  the 
situation,  probably  by  the  design  of  somebody,  or  surprising 
that  resentment  should  be  manifested. 

Evidently  a  widespread  belief  exists  that  the  decline  was 
deliberately  brought  about  for  profit-making  purposes,  and  that 
the  farmers  were  successfully  exploited.  It  is  charged  that  this 
policy  was  carried  out  in  the  case  of  grain  and  cotton  by 
manipulation  of  prices  on  the  exchanges,  and  particularly  by 
“short-selling” — in  other  words,  by  contracting  to  deliver  at 
future  dates,  grain  and  cotton  which  the  sellers  did  not  own 
at  the  time  they  made  the  contracts. 

It  has  been  alleged  that  the  scheme  to  break  prices  was 
supported  by  the  action  of  bankers,  including  the  authorities  of 
the  Federal  Reserve  System,  in  simultaneously  forcing  a  defla¬ 
tion  of  credit,  requiring  farmers  and  other  holders  of  commodi¬ 
ties  to  sell  their  holdings  and  pay  their  obligations. 

The  fact  that  falling  prices  and  credit  deflation  are  features 
of  every  business  crisis  has  caused  similar  charges  to  be  made 
whenever  any  serious  fall  of  prices  has  occurred.  The  average 
man  is  not  easily  reconciled  to  a  decline  in  the  price  of  anything 
that  he  owns,  and  when  price  movements  are  sudden  and  vio¬ 
lent,  he  is  quite  disposed  to  believe  that  somebody  is  to  blame. 

Findings  of  the  Joint  Commission  of  Congress 

T^HE  report  of  the  Joint  Commission  of  Agricultural  Inquiry, 
*  created  by  Congress  in  1921,  and  headed  by  the  Hon.  Sydney 
Anderson  of  Minnesota,  a  speaker  here  today,  has  dealt  with 
this  subject  at  great  length,  and  its  findings  are  conclusive,  at 
least  so  far  as  the  charge  of  discrimination  against  farmers  is 
concerned.  After  reviewing  the  testimony  taken,  the  Commis¬ 
sion  says  (Part  II,  page  117)  : 


“An  analysis  of  the  figures  in  these  studies  seems  to  justify 
the  conclusions : 

“1.  That  the  expansion  of  bank  loans  in  rural  dis¬ 
tricts  during  the  period  of  inflation  ending 
June,  1920,  was  relatively  greater  than  in  the 
industrial  sections,  taken  as  a  whole. 

“2.  That  the  action  of  the  Federal  Reserve  Board 
and  the  Federal  Reserve  banks  during  the  15 
months  preceding  April  28,  1921,  did  not  pro¬ 
duce  a  greater  curtailment  of  bank  ioans  in  the 
rural  districts  than  in  the  financial  and  indus¬ 
trial  sections. 

“3.  Credit  was  not  absorbed  by  the  financial  centers 
at  the  expense  of  rural  communities  for  the 
purpose  of  speculative  activities. 

“4.  That  the  pressure  of  the  forces  of  liquidation 
and  depression  in  the  agricultural  sections  was 
reflected  in  a  reduction  of  deposits.  This  re¬ 
duction  of  deposits,  particularly  demand  de¬ 
posits,  was  relatively  larger  in  the  agricultural 
and  semi-agricultural  counties  in  the  United 
States  than  in  the  industrial  counties.” 

The  Position  of  the  Banks 

THE  facts  cited  by  the  Commission,  that  the  expansion  of 
bank  loans  in  rural  districts  during  the  period  of  inflation 
was  relatively  greater  than  in  the  industrial  sections,  and  that 
the  reduction  of  bank  deposits  was  relatively  greater  in  the 
agricultural  districts  than  in  the  industrial  districts,  go  far  to 
explain  the  drastic  conditions  of  which  complaint  has  been 
made.  With  the  fall  of  prices,  bank  deposits  declined,  and  the 
banks  that  were  loaned  up  closely  found  themselves  under  the 
necessity  of  making  energetic  efforts  to  reduce  their  loans.  These 
efforts  in  many  instances  would  not  have  saved  them  but  for 
the  re-discounting  facilities  afforded  by  their  correspondent 
banks  in  the  larger  cities  and  by  the  Federal  Reserve  banks. 

Another  reason  for  the  pressure  to  collect  loans  which  al¬ 
ways  is  manifest  in  a  crisis  is  that  an  unusual  fall  of  prices 


impairs  the  credit  of  many  borrowers.  A  loan  against  wheat 
which  may  have  been  perfectly  good  when  wheat  was  worth 
$3  per  bushel  might  not  be  good  with  wheat  at  $1.50  per  bushel. 
Bankers  are  under  obligations  to  protect  their  loans  in  order  to 
protect  their  depositors,  and  if  a  borrower  is  unable  to  supply 
ample  security  he  must  expect  to  sell  the  collateral,  if  need  be, 
in  order  to  make  payment  at  least  in  part. 

Results  of  Inflation 

YT  is  unfortunately  true  that  the  banks  of  the  country  came 
*  into  the  crisis  of  1920  with  too  heavy  a  body  of  loans,  and 
with  insufficient  reserves.  The  strength  of  every  business  situ¬ 
ation  is  in  reserve  resources.  If  everybody  was  careful  to  have 
ample  resources  in  reserve  there  would  be  no  crises.  Our  Fed¬ 
eral  Reserve  system  was  planned  to  have  ample  reserve  re¬ 
sources,  but  all  banks  came  out  of  the  war  period  very  much 
extended.  They  did  not  have  the  resources  in  reserve  that 
they  were  planned  to  have,  and  which  with  a  proper  regard 
for  security  they  should  have.  The  Joint  Commission  of  Agri¬ 
cultural  Inquiry  expresses  the  opinion  that  steps  should  have 
been  taken  to  check  inflation  earlier  than  was  done,  and  this 
opinion  I  am  bound  to  say  is  well  supported  in  the  judgment 
of  the  banking  community. 

There  is  no  basis  for  the  charge  that  the  bankers  deliberately 
planned  to  force  deflation  of  credit  or  prices.  Bankers  are  the 
last  people  to  want  to  disturb  values.  They  suffer  inevitable 
losses  in  every  crisis,  first  by  the  inability  of  customers  to  meet 
their  obligations;  second,  by  the  shrinkage  of  deposits  and 
loans;  third,  by  the  decline  of  interest  rates.  Their  reluctance 
to  put  the  brakes  on  inflation  promptly  in  the  spring  of  1919, 
was  due  mainly  to  apprehension  that  unless  credit  was  extended 
freely  during  the  period  in  which  the  armies  were  being  de¬ 
mobilized  and  while  the  shift  from  the  war  industries  to  the 
peace  industries  was  being  made,  a  state  of  unemployment  and 
depression  might  ensue.  In  short,  they  considered  the  spring 
of  1919  a  critical  time. 

But  allowing  that  the  banks  erred  in  not  taking  a  stand 
against  further  inflation  in  the  spring  of  1919,  it  remains  to  be 
said  that  this  is  a  very  different  criticism  from  that  which 


insists  that  they  never  should  have  taken  a  stand  against  infla¬ 
tion  at  all. 

I  do  not  wish  to  take  more  time  here  to  discuss  banking 
conditions  with  relation  to  the  break  in  prices.  The  subject  is 
ably  and  fairly  discussed  in  the  Report  of  the  Joint  Commission 
of  Agricultural  Inquiry.  I  will  proceed  with  the  discussion  of 
market  conditions. 

The  rise  of  prices  in  the  first  place  was  due  to  the  war 
demands,  and  to  the  inflation  which  accompanied  government 
financing.  The  further  rise  in  1919  and  1920  was  caused  by 
the  outburst  of  private  buying  which  followed  the  removal  of 
restraints  which  had  been  imposed  in  war  times,  and  to  the 
revival  of  international  trade.  Nobody  knew  how  long  that 
over  stimulated  situation  would  last,  but  nothing  could  be  more 
certain  than  that  as  the  world  settled  down  to  peace  conditions, 
and  as  industry  and  trade  became  more  normal,  prices  would 
decline. 

The  Beginning  of  the  Decline 

I^JOW  it  is  a  noteworthy  fact  that  the  first  prices  to  fall  were 
not  those  of  wheat  or  cotton,  in  which  future-trading  with 
the  accompaniment  of  short-selling  is  most  common.  All  kinds 
of  live  stock  reached  the  highest  prices  in  1919;  producers  suf¬ 
fered  heavy  losses  upon  fat  cattle  in  the  winter  of  1919-20, 
although  the  general  level  of  prices  did  not  fall  for  some  months 
later.  The  decline  of  live-stock  followed,  and  undoubtedly  was 
closely  related  to  a  great  falling  off  in  our  exports  of  meats. 

The  prices  of  wheat  and  cotton  were  well  sustained  up  to 
the  middle  of  1920.  The  staple  textile  manufactures,  silk,  cotton 
cloth,  and  woolen  goods,  began  to  decline  in  the  spring  of  1920. 
Cotton  cloth  began  to  fall  before  raw  cotton  did,  and  wool,  which 
is  not  traded  in  on  any  exchange,  fell  before  cotton  did.  Shoes, 
leather  and  hides,  which  are  not  traded  in  on  exchanges,  fell  be¬ 
fore  wheat  or  cotton. 

The  whole  downward  movement  of  prices  began  with  the 
falling  off  of  retail  trade,  the  buyers'  strike  as  it  was  called. 
The  torrent  of  order  cancellations  by  merchants,  in  clothing, 
shoes  and  dry  goods,  began  in  May,  1920. 

In  short,  the  record  shows  that  instead  of  the  general  price 
decline  being  inaugurated  by  short-selling  on  the  exchanges, 


the  chief  commodities  traded  in  on  the  exchanges  were  the  last 
to  give  way.  This  probably  was  because  of  greater  confidence 
in  the  world’s  demand  for  wheat  and  cotton  than  in  the  demand 
for  the  other  products.  These  commodities  stand  at  the  top 
of  the  list  of  products  traded  in  upon  world  markets.  Our  ex¬ 
ports  of  these  products  constitute  a  greater  share  of  our  produc¬ 
tion  of  them  than  in  the  case  of  any  other  of  our  staple  crops, 
and  for  that  reason  the  prices  of  them  in  this  country  are  bound 
to  follow  in  the  long  run  the  prices  in  world  markets. 

The  Story  of  Wheat 

THE  situation  as  to  wheat  is  not  quite  so  clear  as  the  reason 
for  the  decline  of  live  stock,  because  our  exports  of  wheat 
have  continued  at  a  high  rate,  but  let  us  examine  it. 

The  wheat  crop  of  the  world  for  1913  was  estimated  by  our 
Department  of  Agriculture  at  4,127,000,000  bushels.  In  1917, 
with  Russia  eliminated,  it  was  estimated  at  about  one-half 
that,  approximately  2,000,000,000.  Since  then,  leaving  Russia 
out  of  the  account  entirely,  it  has  been  estimated  at  2,358,000,000 
for  1918,  2,571,000,000  for  1919,  2,763,000,000  for  1920  and 
2,990,000,000  for  1921,  thus  showing  a  gain  of  about  200,000,000 
bushels  in  each  year  over  the  preceding  one. 

There  was  a  good  degree  of  confidence  in  speculative  circles 
in  the  fore  part  of  1920  that  all  our  wheat  and  cotton  would 
be  wanted  at  the  prevailing  prices,  and  this  confidence  was  re¬ 
flected  in  the  markets  until  the  new  crops  began  to  come  forward 
in  the  fall  months.  By  that  time  the  general  trend  of  com¬ 
modity  prices  was  distinctly  downward.  Wheat  and  cotton  had 
outstayed  the  others;  instead  of  leading,  they  followed.  By 
that  time,  the  crops  in  the  southern  hemisphere  were  sufficiently 
advanced  to  give  assurance  that  the  yields  of  Australia  and  Ar¬ 
gentina  would  be  large,  and  that  the  supply  of  wheat  would  be 
sufficient  to  meet  all  demands  before  the  harvest  of  1921. 


The  Speculator’s  Service 

A  BOUT  75  per  cent  of  the  wheat  crop  ordinarily  comes  on  the 
markets  in  the  first  half  of  the  crop  year,  i.e. ;  before  Janu¬ 
ary  1  following,  and  at  this  time  the  importing  countries  of 
Europe  have  supplies  of  their  own  production  and  are  under  no 


pressure  to  buy.  This  means  that  somebody  must  stand  ready 
to  buy  the  wheat  which  the  American  farmer  offers  and  carry 
a  large  part  of  the  crop  over  into  the  last  half  of  the  year,  be¬ 
fore  it  will  be  wanted  for  consumption-  This  is  the  function  of 
the  speculator,  and  it  is  a  useful  function.  You  may  call  him  an 
investor  if  you  like  the  name  better,  but  in  either  case  he  renders 
that  service. 

If,  in  the  fall  months,  when  marketing  is  heavy,  world 
supplies  promise  to  be  large  enough  to  meet  all  demands  before 
the  next  year’s  harvest,  and  provide  a  surplus,  a  very  uncertain 
future  factor  figures  among  the  speculator’s  risks:  that  is,  the 
size  of  the  next  crop.  By  the  following  April  or  May,  and  per¬ 
haps  before  that,  the  prospects  for  the  next  crop  will  be  a  factor 
in  the  value  of  his  holdings. 

The  Outlook  in  the  Fall  of  1920 

7  OOK  at  the  situation  confronting  a  would-be  investor  in 

wheat  in  the  fall  of  1920:  Commodity  prices  generally 
were  tending  downward;  there  were  symptoms  of  coming  de¬ 
pression  all  over  the  world;  the  political  and  industrial  situation 
in  Europe  was  bad ;  the  exchange  situation  looked  bad ;  the 
price  of  wheat  was  two  to  three  times  the  pre-war  price,  and 
the  supply  of  wheat  promised  to  be  more  than  sufficient  to  meet 
all  demands  before  the  next  harvest.  The  investor  in  wheat 
must  be  prepared  to  carry  it  into  the  next  crop  year.  It  was 
considered  an  uninviting  prospect  by  many  dealers;  the  specu¬ 
lative  demand  was  not  sufficient  to  take  the  offerings  at  the  high 
prices,  and  prices  gave  way. 

The  situation  is  clearer  today  than  it  was  at  that  time.  The 
heads  of  the  farm  organizations  insisted  that  all  our  wheat 
would  be  wanted  before  the  end  of  the  crop  year,  and  endeavored 
to  pledge  their  members  not  to  sell  for  less  than  $3  per  bushel. 
They  were  sincere,  of  course,  and  thought  that  the  dealers  who 
advised  sales  were  frying  to  get  the  farmer’s  crop  away  from 
him  for  less  than  it  was  worth. 

Well,  the  time  for  argument  over  what  wheat  was  worth  in 
the  fall  of  1920  is  now  over,  although  the  argument  goes  on ;  we 
know  now  for  a  fact  that  there  was  wheat  enough  in  this  coun¬ 
try  to  meet  all  demands  on  a  declining  price  scale,  and  leave 


more  than  100,000,000  bushels  to  be  carried  over  into  the  next 
crop  year. 

The  Losses  on  Wheat 

¥T  must  not  be  thought  that  the  farmers  alone  were  mistaken 
*  about  the  price  of  wheat,  or  alone  suffered  by  the  decline. 
Not  all  the  speculators  were  wise  enough  to  judge  the  situation 
correctly.  I  have  already  stated  that  75  per  cent  of  the  1920 
crop  left  the  farmers’  hands  before  January  1,  1921.  Mr.  Julius 
H.  Barnes,  than  whom  there  is  no  better  authority  upon  wheat, 
has  calculated  that  this  75  per  cent  was  sold  at  an  average  price 
equal  to  267  per  cent  of  the  average  price  in  1913.  He  esti¬ 
mates  that  the  dealers,  millers  and  merchants  who  took  this 
part  of  the  crop  from  the  farmers  suffered  a  loss  aggregating 
$200,000,000,  and  that  this  was  more  than  the  aggregate  losses 
of  the  farmers  upon  the  total  crop. 

It  is  a  mistake  to  suppose  that  the  farmers  were  the  only 
ones  who  lost  by  the  decline  of  wheat.  Practically  everybody 
who  handled  any  of  the  1920  crop  of  wheat  without  hedging  lost 
money  on  it.  It  is  true  that  some  speculators  made  money  by 
selling  short,  but  whatever  they  sold  somebody  else  bought — 
whatever  they  made  somebody  else  lost — and  in  that  case  pre¬ 
sumably  it  was  not  the  farmers.  The  speculators  were  divided 
among  themselves,  some  profiting  and  others  losing. 


Meat  Packers’  Losses 

A  ND  so  it  is  also  true  that  in  the  decline  of  other  farm  prod- 
**  ucts,  the  farmers  were  not  the  only  losers.  The  meat¬ 
packing  industry,  as  a  whole,  has  yielded  practically  no  profits 
for  the  last  three  years,  and  the  aggregate  losses  of  the  five 
leading  companies  in  the  year  1921  were  authoritatively  stated 
at  over  $60,000,000.  In  any  division  between  big  business  and 
little  business,  the  packers  would  be  classed  with  big  business. 
If  any  conspiracy  was  going  on  in  the  financial  world,  they 
might  be  expected  to  hear  of  it  and  ^to  escape  its  effects,  but 
in  this  instance  they  have  been  among  the  heaviest  losers. 


Losses  Upon  Cattle 

HpHE  producers  of  cattle  who  suffered  most  severely  were 
^  those  who,  tempted  by  rising  prices,  ventured  deeply  into 
debt  for  the  purchase  of  stock  cattle.  They  borrowed  too  much, 


and  in  many  cases  borrowed  unwisely  by  having  their  promissory 
notes  sold  On  the  market  to  strangers,  counting  upon  pay¬ 
ing  the  notes  when  they  fell  due  by  selling  new  ones.  The  com¬ 
petition  for  stock  cattle  by  growers  seeking  to  increase  their 
herds  carried  prices  very  high,  and  the  making  of  so  much  in¬ 
debtedness  upon  that  basis  created  a  precarious  situation.  When 
settlement  day  came,  new  paper  could  not  be  sold  to  take  up  the 
old,  and  that  class  of  cattle  was  thrown  on  the  markets  in  excess 
of  the  ability  of  the  markets  to  absorb  it  without  a  heavy  decline 
in  prices. 

Increase  of  Indebtedness 

IT  might  be  supposed,  if  one  had  never  read  history,  and  did 
not  know  much  about  human  nature,  that  in  such  a  period 
of  rising  prices  and  prosperity  as  the  farmers  enjoyed  for 
about  five  years,  they  would  have  reduced  their  indebtedness 
of  all  kinds — paid  off  their  mortgages  and  cleaned  up  what  they 
might  be  owing  at  the  banks.  On  the  contrary,  the  aggregate 
farm  mortgage  indebtedness  of  the  country  was  very  largely 
increased  in  this  time,  the  increase  in  some  of  the  most  pros¬ 
perous  states  being  more  than  100  per  cent  between  the  censuses 
of  1910  and  1920.  Moreover,  although  it  is  represented  that 
the  farmers  are  without  adequate  banking  accommodations,  the 
fact  is  that  the  volume  of  bank  loans  to  farmers  in  the  most 
prosperous  farming  states  was  very  largely  increased  from  1935 
to  1920.  If  I  wanted  to  state  in  the  fewest  possible  words  an 
explanation  of  the  agricultural  distress  of  the  last  two  years,  I 
would  put  it  in  three  words,  “Too  much  borrowing.”  The 
wholesome  fear  of  debt  which  was  prevalent  when  some  of  us 
were  young  had  been  largely  dissipated  by  the  rising  prices 
of  the  last  twenty-five  years.  Men  had  been  led  to  believe  that 
the  way  to  get  ahead  was  by  the  use  of  borrowed  money,  and 
that  the  smaller  the  margins  on  which  they  operated  the  more 
rapid  their  progress  would  be.  The  truth  is  that  the  number  of 
men  able  to  use  borrowed  money  advantageously  always  has 
been  comparatively  small. 

In  speaking  of  the  indebtedness  of  farmers,  I  do  not  wish 
to  be  understood  as  representing  farmers  as  a  class  as  more 
imprudent  or  reckless  than  other  people,  including  business  men 
generally.  They  had  plenty  of  good  company,  both  in  borrow- 


ing  and  losing.  They  did  just  what  most  business  men  did, 
and  the  combined  effect  of  this  general  policy  of  inflation  was 
to  overdo  the  use  of  credit,  create  an  abnormal  price  level  and 
bring  about  a  disastrous  reaction. 

It  is  pertinent,  however,  to  point  out  at  this  time,  when 
relief  for  the  farmer  is  proposed  through  various  plans  for  pro¬ 
viding  him  with  more  credit,  that  the  chief  factor  in  the  plight 
in  which  he  is  now  struggling  has  been  too  much  credit.  I  do 
not  say  this  in  uncompromising  hostility  to  every  plan  for 
providing  credit  that  may  be  offered,  but  as  a  proposition  funda¬ 
mental  to  the  present  situation.  I  do  not  think  that  lack  of 
credit  is  a  factor  in  the  present  price  situation,  and  I  believe 
that  the  farmers  are  now  more  interested  in  prices  than  they 
are  in  increasing  production.  Dr.  Henry  C.  Taylor,  Chief  of  the 
Federal  Bureau  of  Agricultural  Economics,  is  quoted  as  com¬ 
menting  upon  fears  of  a  future  food  scarcity  by  saying,  in  a  re¬ 
cent  address,  that  “the  problem  before  the  American  farmer  is 
not  the  holding  of  the  population  down  to  the  food  supply  but 
the  holding  of  the  food  supply  down  to  the  demands  of  the 
population.” 

Increased  Production — Lower  Prices 

FT  seems  to  be  in  order,  therefore,  to  suggest  that  if  the  plans 
for  placing  more  credit  at  the  disposal  of  farmers  should  prove 
successful,  and  the  production  of  the  farms  should  be  thereby 
increased,  the  natural  effect  might  be  to  reduce  the  price-level 
below  what  it  is  at  present.  On  general  principles,  a  lowering 
of  prices  resulting  from  a  lowering  of  costs  is  something  to  be 
desired.  It  is  certainly  in  the  interest  of  consumers,  but  it  is  not 
urged  in  their  behalf  at  present.  The  fact  may  as  well  be  recog¬ 
nized  that  it  will  not  bring  relief  to  all  farmers,  or  put  an  end  to 
the  calls  for  relief.  On  the  contrary,  it  is  probable  that  the  class 
of  farmers  who  are  in  deepest  distress  now  would  be  in  still 
deeper  distress  if  prices  went  lower  as  a  result  of  placing  in¬ 
creased  facilities  for  production  at  the  command  of  the  more 
efficient  class  of  farmers. 

Indeed,  there  is  some  ground  for  questioning  whether  that 
is  not  one  of  the  pinching  factors  in  the  present  situation.  Mr. 
Julius  H.  Barnes,  in  a  recent  address,  stated  that  in  the  20 
years  from  the  census  of  1900  to  the  census  of  1920 — 


The  population  of  the  United  States  increased  40  per  cent; 
The  number  of  persons  engaged  in  agriculture  increased 
4  per  cent; 

The  production  of  wheat  increased  58  per  cent; 

The  production  of  corn  increased  35  per  cent; 

The  production  of  cotton  increased  47  per  cent; 

The  production  of  cattle  increased  37  per  cent; 

The  production  of  hogs  increased  68  per  cent 
These  figures  would  indicate  that  some  portion  of  the  farm¬ 
ing  population  has  been  increasing  its  efficiency,  and  presumably 
decreasing  the  cost  of  production,  and  naturally  this  would  make 
severe  competition  for  that  portion  of  the  farm  population  which 
is  not  keeping  the  pace. 

Efficient  Competition 

I  HAVE  an  editorial  clipping  from  Wallace's  Farmer  of  May 
27,  1921,  at  which  time  farm  products  wrere  near  the  bottom. 
Wallace’s  Farmer  is  published  in  Des  Moines,  is  one  of  the 
leading  farm  journals  of  the  west,  and  has  not  been  behind 
the  others  in  calling  for  relief  for  agriculture.  The  edito¬ 
rial  to  which  I  refer  presents  a  calculation  showing  that  the 
principal  commodities  which  the  Iowa  farmer  had  to  buy  then 
stood  at  about  177  per  cent  of  their  pre-war  prices,  while  the 
products  which  he  had  to  sell  stood  at  about  104  per  cent  of 
their  pre-war  value.  The  editorial  proceeded  to  say: 

One  hundred  and  four  dollars  worth  of  buying 
power  to  satisfy  $177  worth  of  normal  needs  is  a 
situation  calculated  to  make  the  Iowa  farmer  think 
twice  before  he  buys.  Nevertheless ,  in  spite  of  this 
temporarily  had  situation,  so  far  as  the  average 
Iowa  farmer  is  concerned,  there  are  thousands  of 
farmers,  who  own  their  ozvn  farms  and  who  saved 
their  money  during  the  war,  who  are  better  off 
than  they  have  ever  been. 

This  comment  would  seem  to  indicate  that  present  distress 
is  not  due  to  fundamental  conditions,  but  rather  to  mistaken 
judgment  in  dealing  with  abnormal  temporary  conditions.  The 
class  of  farmers  referred  to  in  this  editorial  belong  to  the  class 
of  men  who  in  every  line  of  business  are  the  leaders  and  price- 


makers,  and  who  make  conditions  difficult  for  competitors.  Is 
it  possible  that  they  are  getting  so  numerous  among  the  farmers 
that  their  competition  is  felt,  and  if  so,  can  anything  be  done 
about  it,  or  ought  anything  to  be  done  about  it  ? 

The  War’s  Disturbance 

¥  DO  not  mean  to  say  that  the  farmer’s  troubles  are  all  imagi- 

*  nary,  or  that  he  does  not  deserve  sympathy  and  help,  so  far  as 
it  can  be  given.  His  troubles  are  real,  and  not  only  are  we  all 
obligated  to  render  any  possible  assistance,  but  it  is  to  the  inter¬ 
est  of  all  that  the  farmer’s  recovery  shall  be  as  speedy  as  pos¬ 
sible.  The  farmer,  however,  is  involved  in  a  world  situation. 
The  world  has  been  passing  through  the  most  terrible  experience 
of  its  history.  Nothing  like  the  devastating  and  disorganizing 
effects  of  the  world  war  has  been  known  since  the  world’s  popu¬ 
lation  became  what  it  is,  or  since  society  reached  the  state  of 
modern  interdependence.  All  kinds  of  business  have  suffered 
heavy  losses,  and,  if  we  stop  to  think  about  it,  what  reason  ever 
was  there  for  expecting  anything  else?  War  is  not  a  productive 
enterprise.  Nobody  ought  to  profit  by  it,  and  the  fundamental 
reciprocity  which  is  the  basis  of  all  prosperous  societies  makes  it 
certain  that  no  important  classes  ever  can  prosper  by  it.  There 
never  was  any  reason  for  supposing  that  the  war  could  usher  in 
a  period  of  great  and  enduring  prosperity.  Every  business  move 
made  upon  that  assumption  was  miscalculated. 

Industry  Unbalanced 

¥  BELIEVE  it  to  be  true  that  the  situation  is  still  out  of  nor- 

*  mal  balance  as  between  agriculture  and  the  other  industries. 
That  the  prices  of  farm  products  should  fall  faster  in  a  reaction 
than  the  prices  of  other  products  and  services  is  natural  and 
has  been  so  in  every  crisis.  The  editorial  from  Wallace’s  Farmer 
already  referred  to  says  that  in  1916,  1917,  1918,  and  1919  the 
purchasing  power  of  what  the  Iowa  farmer  had  to  sell  was 
above  the  pre-war  parity  in  relation  to  the  things  he  had  to 
buy.  He  gained  on  the  up-grade  and  has  lost  on  the  down¬ 
grade.  Although  the  farmer  and  his  family  do  a  great  part  of 
the  farm  work  themselves,  he  is  economically  in  the  position 
of  a  proprietor  and  employer  who  always  gain  as  prices  rise  and 
lose  as  prices  fall.  He  cannot  have  it  both  ways. 


The  disturbance  of  economic  relationships  was  widespread, 
and  it  is  not  soon  over.  All  the  factors  in  the  situation  are  not 
affected  alike.  Farm  products,  constituting  our  chief  exports, 
and  being  more  dependent  upon  foreign  markets  than  other 
products  are  more  directly  and  quickly  affected.  Hired 
labor  is  not  nearly  so  much  of  a  factor  in  the  cost  of  farm  prod¬ 
ucts  as  it  is  the  cost  of  manufactures,  coal  or  transportation.  It 
is  very  doubtful,  when  the  value  of  his  land  and  equipment  is 
considered,  and  his  taxes  and  other  fixed  expenses  are  taken 
into  account,  whether  the  farmer  can  gain  anything  by  curtail¬ 
ing  production,  as  a  manufacturer  does  when  prices  fall  below 
cost. 

The  farmer's  chief  grievance  is  that  the  things  he  has  to 
buy  have  not  come  down  to  correspond  with  the  prices  of  what 
he  has  to  sell,  and  I  think  it  is  a  just  grievance,  but  I  do  not 
believe  there  is  any  remedy  for  it  except  by  the  gradual  opera¬ 
tions  of  economic  law.  There  are  some  factors  on  the  other 
side  of  the  situation  which  he  does  not  see.  House-building 
fell  behind  during  the  war,  and  the  deficit  has  not  been  made 
good.  This  has  made  rents  very  high  for  city  wage-earners, 
and  rent  is  one  of  the  principal  items  in  their  cost  of  living. 
High  rent  constitutes  one  of  the  reasons  for  their  resolute  resist¬ 
ance  to  wage  reductions. 

Labor  is  the  chief  factor  in  the  prices  of  which  the  farmer 
complains,  and  the  Labor  problem,  as  presented  in  the  wage  dis¬ 
putes  and  strikes,  is  a  great  social  problem  that  nobody  can  set¬ 
tle  offhand.  It  is  as  much  the  farmer’s  problem  as  anybody’s. 
The  ideal  solution  is  by  the  development  in  all  classes  of  such  an 
understanding  of  mutual  interests  and  mutual  obligations  as  will 
impel  all  to  join  in  finding  a  fair  basis  of  agreement.  There  is  no 
question  that  the  compensation  of  the  farmer  must  be  brought 
into  just  relations  with  the  compensation  of  workers  in  the 
other  industries  before  there  can  be  full  and  lasting  prosperity 
for  anybody. 

The  European  Situation 

A\NE  of  the  conditions  which  has  affected  farm  products  un* 
favorably  since  1920  has  been  the  lack  of  speculative  interest 
in  the  markets.  While  the  farmer  has  been  blaming  the  specu¬ 
lator  and  endeavoring  to  secure  laws  to  curtail  his  operations, 


the  want  of  speculative  spirit,  the  want  of  courage  to  buy  farm 
products  and  carry  them  for  future  sale,  has  been  one  of  the 
principal  factors  in  the  weakness  of  the  markets. 

The  explanation  of  this  lack  of  speculative  interest  is  to  be 
found  in  the  uncertainty  about  foreign  conditions.  It  is  possi¬ 
ble,  having  information  as  to  the  world’s  wheat  supply,  to  cal¬ 
culate  about  how  much  wheat  should  be  worth,  providing  Europe 
will  take  what  it  would  normally  consume.  But  conditions  in 
Europe  are  such  that  it  is  impossible  to  say  what  its  buying 
ability  will  be  over  any  period  in  the  future.  Of  course  there 
is  speculation,  but  the  speculators  want  a  wider  margin  of 
security — in  other  words,  they  must  buy  more  cheaply  than  if 
they  were  trading  under  normal  conditions. 

Lack  of  Speculative  Courage 

IT  has  been  known  since  the  1st  of  last  July  that  the  wheat 
crop  of  Europe  is  approximately  200,000,000  bushels  less 
than  last  year,  and  that  the  world’s  supply  and  demands  are 
very  closely  balanced  this  year.  If  anything  should  go  wrong 
with  the  crops  of  the  southern  hemisphere  which  are  now  ap¬ 
proaching  harvest,  there  certainly  would  be  a  shortage.  Never¬ 
theless  the  markets  have  shown  but  little  life.  Europe  has  its 
own  crops  to  start  with — and  has  been  cautious  about  its  buy¬ 
ing.  In  the  last  two  months,  however,  the  price  of  wheat  has 
gone  up  about  30  cents  per  bushel  in  Europe.  The  advance  in 
the  primary  markets  of  this  country,  where  the  farmers  sell 
their  grain,  has  not  kept  pace  with  the  advance  in  Europe  or  at 
this  seaboard,  mainly  because  of  the  transportation  blockade. 
The  primary  markets  are  congested,  and  the  normal  competi¬ 
tion  there  for  wheat  is  held  in  check  for  lack  of  facilities  for 
storage  and  transportation,  with  the  result  that  wheat  through¬ 
out  the  west  has  been  about  10  cents  per  bushel  below  the 
normal  parity  with  the  world’s  price. 

This  situation  has  affected  the  dealers  as  well  as  the  farmers, 
perhaps  even  more,  for  if  the  movement  had  been  freer  prices  at 
the  seaboard  might  have  been  lower.  But  dealers  have  lost 
millions  of  dollars  through  defaults  upon  contracts,  demurrage 
charges,  etc.  Of  course  buyers  take  these  risks  into  account  in 
the  prices  they  are  willing  to  pay. 


The  Plight  of  the  Railroads 

HERE  we  have  the  farmer  suffering  from  conditions  for 
which  he  is  himself  in  some  degree  responsible.  He  fights 
the  railroads  for  lower  freight  rates,  without  consideration  for 
the  fact  that  the  railroads  are  unable  to  reduce  their  operating 
costs,  and  that  their  earnings  are  inadequate  to  pay  fair  returns 
upon  the  capital  investment.  The  popular  view  of  the  railroads 
is  that  they  are  owned  by  a  few  rich  bankers  who  can  put 
their  hands  in  their  pockets  for  any  funds  that  may  be  needed 
to  enlarge  the  facilities  from  time  to  time.  The  truth  is  that 
the  ownership  is  widely  distributed,  and  the  only  way  new 
capital  can  be  raised  for  them  is  by  offering  their  securities  on 
the  public  market.  Moreover,  the  earnings  are  so  low,  and 
the  menace  to  the  investment  is  so  great,  from  the  employe 
organizations  on  the  one  side  and  the  farmers’  organizations  on 
the  other,  that  it  is  increasingly  difficult  to  raise  money  for  the 
railroads  in  the  public  market.  The  strongest  companies  are 
still  able  to  borrow,  by  creating  obligations  that  rank  ahead 
of  the  stock,  but  a  sound  business  should  be  able  to  raise  about 
one-half  of  its  new  capital  by  increasing  proprietors’  capital, 
and  this  the  roads  are  not  able  to  do  under  present  conditions. 
They  cannot  go  on  increasing  their  indebtedness  indefinitely, 
for  the  margin  of  safety  is  being  reduced. 

The  result  is  that  railroad  facilities  have  not  been  kept  up 
to  the  growing  needs  of  the  country  and  railroad  congestion 
follows.  Problems  of  this  kind,  affecting  the  farmers’  welfare, 
and  the  welfare  of  the  entire  community,  need  to  be  treated  in  a 
broad  and  constructive  manner. 


Free  Play  of  Economic  Forces  the  Best  Remedy 

I^TOTWITPISTANDING  all  of  these  perplexing  and  discour- 
aging  conditions,  the  prices  of  farm  products  have  gone  a 
long  way  on  the  road  to  recovery  in  the  past  year.  Given  a 
settlement  of  political  conditions  in  Europe,  so  that  industry 
and  trade  will  have  a  sound  basis  over  there,  and  the  usual 
international  credits  can  be  safely  granted,  there  is  every  reason 
to  believe  that  the  products  of  American  agriculture  will  find  a 
ready  market  at  remunerative  prices.  The  number  of  mouths 
to  be  fed  in  the  world  is  constantly  increasing,  and  there  are 


no  longer  any  such  areas  of  readily  accessible  lands  as  awaited 
settlement  fifty  years  ago  in  the  Mississippi  Valley.  The  out¬ 
look  for  the  farmer  is  changed  in  no  permanent  respect  from 
what  it  wras  at  the  beginning  of  1914.  In  my  opinion  there  is  a 
great  deal  more  danger  of  too  much  legislation  on  the  subject 
than  of  too  little. 


r 

L 


Ht  UBMM  OF  IHt 
AUG  2  7  1924 

UNIVERSITY  of  ILLINOIS 


